Optimal deterrence and inducement of takeovers: An analysis of poison pills and dilution
AbstractThe paper presents a theoretical alternative to the commonly held belief that poison pills affect shareholder wealth negatively. Specifically, the paper models how ex ante shareholder wealth can be maximized with contractual provisions that resemble poison pill plans and, reversely, voluntary dilution à la Grossman and Hart (1980) by allowing an optimal choice of takeover probabilities and premia. The model's predicitions are consistent with recent empirical evidence [Comment and Schwert (1995)]. The paper shows that, under optimal employment of the proposed provisionsa, the comparative statics on takeover probabilities and premia differ partially from those proposed in Shleifer and Vishny (1986). As an extension, an analysis of the wealth effects of changes in the control threshold, as implied by, e.g., supermajority rules and a mandatory bid rule, is conducted.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 102.
Length: 34 + vii pages
Date of creation: Feb 1996
Date of revision:
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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More information through EDIRC
Takeover defense; poison pills; dilution;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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